When it comes to numbers, there is always more than meets the eye. In operational finance, you will learn how to read the “story” that the balance sheet and income statement tells about the company’s operations. The insights you gain from this “financial story” will then become a tool for short-term decision-making at the top management level relating to current assets, current liabilities and the management of working capital. Finally, by the end of the course you will understand the financial consequences of managerial decisions on operations, marketing, etc.

AC

Fantastic course, such a well laid out structure, Miguel sir explained with such enthusiasm, especially the case with Working Capital as to why it's not an asset. An excellent course!!!

JF

Jul 01, 2018

Filled StarFilled StarFilled StarFilled StarFilled Star

Amazing course, the questions posed are very insteresting and you actually have to think to be able to solve them. The best course of the first 4 courses of this specialization.

Из урока

Week 4: Negative NFO and DuPont Analysis

In this final week, we will introduce the final pieces of the puzzle to give you a complete overview of operational finance. We’ll discuss tools like sensitivity analysis that will help you consider the potential outcome of a decision given different variables. In this session we will also look at other crucial concerns for the firm and its shareholders like sustainable growth and ROE (Return On Equity) plus revisit NFO (Need of Funds for Operations) and other topics. Objectives: By the end of this session, you should have a complete overview of the key aspects of operational finance. You will also understand what tools financial professionals use in order to make decisions to strengthen a company’s position.

Преподаватели

Miguel Antón

Associate Professor

Текст видео

[MUSIC] Let's move on to the second one. Now, the second one, what can we say about the second one? Let's look at another element that can give us a hint. This is really interesting. Now, instead of looking at the balance sheet or the P and L, let's move down into the days operational ratios. What do you see in the days of collection? It turns out that there's only one company that has days of collection really low. Just this one, right? Four days of collection. This means that almost everyone pays in cash. Now, which of the four industries do you think people pay in cash more often? Pharmaceutical, Internet, consumer electronics, or retailer? Well, you would agree with me that when you go to a retailer company like a supermarket, almost everyone pays in cash or a credit card, which means that you're paying that in the following, and the bank pays in the following 24 hours. So very few days of cash, almost everyone paying in cash means that it's probably a retailer. Is there any other element that can hint us to this column being a retailer company? Well, perhaps, right? Is there anything special in the NFO part that you can see? Exactly, this is what you were thinking, hey, Miguel, there is only one company that has negative NFO, and it's exactly this number two, the retailer. What is the meaning of having a negative NFO? If you remember, NFO is receivables plus inventory minus payables. A negative NFO means that payables are much bigger than receivables plus inventory. In a way, you are paying your suppliers much later, then your customers pay you. And this happens in big retailer companies that have a lot of negotiating power, and they pay their suppliers really late, and they collect really early. Another element to confirm that this is a retailer company. There is one last element, which is big retailers actually competing prices a lot, so it turns out that the ROS is pretty low. Look at the ROS of the other companies. This one is at 3.9%, so really low ROS, really low margins. So with those three elements, were able to say, look, this is our retailer, and this retailer, which one can it be? I'll give you a hint. Look at the top line. Sales $421 billion US, half a trillion euros in sales. Which company in the world has half a trillion dollars in sales? Walmart, exactly. Now, let's move on to the other two. Now, another element, now you are following major exactly these points that you are saying that didn't realized that this one is. So let's see the third one is. Look again at the days of collection, the inventory, and payables. Is that something that surprises you? Yes, exactly, this is what you were thinking. Now, look at this, at the last column, days of inventory, zero, but like zero. Which industry has zero days of inventory out of the four? Well, a retailer, you needs to have inventory. Pharmaceutical, you need to have inventory. Consumer electronics, you need to have inventory. So it can only be an Internet company, right? An Internet company has no inventory. So, just for that thing? Will we be able to guess that number 40 is the Internet company? But still, is there anything else that can lead us to think that this is actually the Internet company? Well, look at the total equity. Leverage is very low, so almost $5 billion out of the 6.3 are in equity. Internet companies have very little collateral, so when an Internet company goes to a bank, the bank normally says no. So in general, as you would agree with me, with tech startups and tech companies in general, they have to finance themselves through rounds of financing with private investors. So these as well that low leverage company might be the internet company. And lastly, if I told you, look, where is all that equity? 3.9 billion in cash. Well, it turns out that this company is actually Facebook, and Facebook went IPO, so floated into the stock market at the beginning of 2011 or 2010 at the end, right? Which means they started selling stocks, equity was a boost, and they hand all that money in cash. And then I highlighted the 77% of gross margin, again, because the big cost is an internet company is not the cost of good sold. It's the OPEX in between, which is the salaries of the developers and people working there, right? So exactly, this one is Facebook, as I've just said. Now, just because we have the three of them, it's clear that the fourth one is the consumer electronics is the number three. Now, is there any hint, even though we know, because it's the last one, is there any hint that we can guess from that? Well, look at the ROS. Return on sales is pretty high, almost 24%, which means there is something also almost premium. Is there a consumer electronics that sells almost premium things? Well, Apple, right? Apple sells really premium things, premium tablets, iPhones. And then another thing is, as I said in the previous slides, Apple is well-known for having a lot of cash in their balance sheet, so you see there is 26 billion euro's in cash even though there is credit of 10, 11 billion, right? Do you agree the thing I said before? Some companies have both cash, a lot of cash and some credit. So with that in mind, then we can say that this is Apple. But wait. Consumer electronics, how is it that they have so little inventory? This is something I leave for you to investigate. But basically, Apple is smart enough to keep only inventory instead of in their own balance sheet, in the balance sheet of a company that is called Foxconn, all right? I'll leave that for you. And this one is Apple. Now you see, I showed you four financial statements that you didn't know which ones were they. You did some homework, and you actually guessed some of those points, so you are actually getting very good at this. Now, with these 10, 12 minutes that we've spent analyzing those balance sheets, now you get an idea, a flavor of how this T-accounting works with a course by Marc Badia. But then now, you are able to understand much better which kind of company you are facing when you look at the P&L and the balance sheet. And in the next clip, we're going to close the course. [MUSIC]